Straddle, strangle, spread, butterfly, iron condor

Long call and long put

The simplest strategies: buy a call if you expect a rise, buy a put if you expect a fall. You pay the premium up front. That premium is also the most you can lose.

• Risk — Limited to the premium paid.
• Reward — Call: can keep rising if the price rises. Put: grows if the price falls toward zero.
• When to use — You have a clear up or down idea and you want a known maximum loss. Strike prices farther from the market are cheaper but need a bigger move.

Long call / put calculator Gamma Optimizer

Short call and short put

Selling a call or a put (without buying another option as a hedge) collects a premium. The trade works if the option expires unused or you buy it back cheaper. The risk is the opposite of buying: a sold call can lose without a cap if the price keeps rising.

If you already own the shares, a covered call is a different picture: the shares cover the sold call, so the main cost is missed upside rather than an uncapped loss. If you set cash aside to buy the shares, see the cash-secured put.

• Risk — Sold call: no cap. Sold put: large if the price falls toward zero, minus the premium you received.
• Reward — Limited to the premium received.
• When to use — You expect a quiet market or a modest move away from the strike price, and you accept a large loss if you are wrong. Many people cap that risk with a spread instead.

Short call / put calculator Spread with a limited loss

Covered call

A covered call means you already hold the underlying — for example the shares — and you sell a call against those shares. The buyer of that call has the right to buy them from you at the strike price. You keep the premium they pay you.

People use it to collect that premium as extra income. If at expiry the stock is still below the strike price, the call expires unused (it is worth nothing) and you keep both the shares and the premium. In that case there is no capital loss from the option itself.

• Risk — The main cost is missed upside (opportunity cost). If the stock rises above the strike price and the call is exercised, your shares may be called away: you sell them at the strike. You do not pocket the further rise. That missed gain is not the same as the unlimited loss of a short call sold without the shares, because you already own the stock that covers the call. If the stock falls, you still own it and can lose on the shares; the premium only cushions that a little.
• Reward — The premium, plus any rise in the shares up to the strike price.
• When to use — You already own the shares, you would be willing to sell them at the strike price, and you want extra income if the market stays quiet or rises only a little.

Short call calculator Long call (the buyer's side)

Cash-secured put

A cash-secured put (CSP) means you sell a put while cash is reserved — set aside — to buy the shares if you are assigned. Assigned means the put buyer uses their right to sell: you must buy the underlying at the strike price.

The benefit: you collect a premium. If the put expires out of the money (OTM) — the stock stays above the strike price — the put is unused and you keep both the premium and your cash.

If you are assigned (the stock is below the strike price), you buy the underlying at that strike. That can be useful if you wanted to own it anyway, at that price, with the premium as a small discount.

• Risk — After assignment you own the stock. If it keeps falling, you can lose on a mark-to-market basis, like any shareholder. The cash sitting idle could also have been used elsewhere (opportunity cost). The premium cushions a fall only a little.
• Reward — Limited to the premium if the put expires unused. If assigned, you own the shares at the strike price minus that premium.
• When to use — You would be happy to buy the shares at the strike price, and you accept that the cash must stay reserved until expiry.

Short put calculator Long put (the buyer's side) Gamma Optimizer

Call spread and put spread

A vertical spread buys one option and sells another of the same type at a different strike price. The sold option helps pay for the bought one, so you spend (or receive) less than with a single option, and both the gain and the loss are capped by the gap between the two strike prices.

• Risk — Known in advance: what you pay if you buy the spread, or the gap between strike prices minus what you receive if you sell it.
• Reward — Also known in advance: the gap minus what you paid, or the premium you received.
• When to use — You think the price will rise or fall but do not need unlimited gain, or you want to sell premium without leaving the loss uncapped.

Call / put spread calculator

Straddle

A straddle is a call and a put with the same strike price, usually near today's price. If you buy both, you pay two premiums and you need a large move either way. If you sell both, you keep those premiums and you want the price to stay still. You roughly break even if the market moves by the total premium.

• Risk — Buying: the two premiums. Selling: a large move either way can lose without a cap.
• Reward — Buying: grows with a big move. Selling: you keep the premiums if the market finishes near the strike price.
• When to use — Around an event, when you expect a large move but do not want to pick up or down. Compare what the options cost with the move you actually expect.

Straddle calculator Compare with a strangle

Strangle

A strangle is the two-strike-price cousin of the straddle: a cheaper call above the market and a cheaper put below. It costs less than a straddle at today's price, so you pay less, but the market must travel farther before you get that money back. Selling a strangle still loses a lot if the price breaks out.

• Risk — Buying: both premiums. Selling: large or uncapped if the price leaves the range.
• Reward — Buying: a move beyond the farther strike price, after the premiums. Selling: you keep the premiums if both options expire unused.
• When to use — You want a cheaper way than a straddle to bet on a large move, or a wider quiet zone if you sell. An iron condor adds extra options that cap that sold strangle.

Strangle calculator Iron condor (loss is capped)

Butterfly

A long butterfly buys one option at a low strike price, sells two at a middle strike price, and buys one at a high strike price (all calls or all puts). The best result is if the market finishes at the middle. The outer options cap the loss at what you paid. It is a limited-risk way to bet that the price stays near one strike price.

• Risk — Limited to what you pay (when you buy the butterfly).
• Reward — Limited too: largest if the market expires at the middle strike price.
• When to use — You expect the price to finish near one strike price and you want a known maximum loss. Selling a butterfly is the opposite: you want a large move away from the middle.

Butterfly calculator

Iron condor

An iron condor is a put spread plus a call spread: four options, with a limited loss on both sides. You typically receive a net premium and keep it if the market expires between the two inner strike prices. Losses start if the price crosses an inner strike price, and they stop at the outer one.

• Risk — Known in advance: the wider of the two spreads, minus the premium you received.
• Reward — Limited to that premium if both sold options expire unused.
• When to use — You expect the price to stay in a range and you prefer a known maximum loss to selling a strangle with no cap. Wider inner strike prices pay less and need a bigger move before you lose.

Iron condor calculator